Life insurance isn’t a fun thing to think about, and it may seem like an unnecessary expense. But if you have people who depend on you for financial support, then life insurance is really about protecting them in case something happens to you – your designated beneficiary would collect a financial benefit upon your death. Life insurance can be confusing, so here’s a rundown of the basics.
Types of Life Insurance
This is the simplest and generally the cheapest form. You buy coverage for a specific period of time. It can usually be renewed, but premiums will increase based on age and health factors. There is no cash value.
All other types of life insurance are permanent, but there are several varieties. They all include a savings element that builds cash value, in addition to the death benefit. Once that cash value accumulates, it is accessible to the policyholder tax-free. The following are some of the common types of permanent life insurance.
You purchase this policy to cover your entire life, as long as you keep paying premiums. Premiums remain constant throughout the policy, and the company invests a portion of your premium that becomes the cash value. These are more expensive than term policies in the early years, but they even out because the premium does not increase.
This policy is similar to whole life, but has the potential for higher earnings on the savings component. It is more flexible in terms of changing premiums and face value throughout the policy. There is usually a guaranteed return on the cash value. Disadvantages include higher fees and the possibility of increasing premiums.
A variable life policy generally has fixed premiums, and you have control over the investment decisions for the cash value portion. However, this is riskier because there is no guarantee for the cash value.
How Much to Buy?
WD & Associates offers life insurance to individuals as well as to employers as part of a benefits package, but it’s hard to know how much to buy. Many people decide based on an income replacement calculation, between 5 and 10 times the amount of your current income but each person's situation is different.
Think about your personal circumstances: Is yours the sole income in your household? Are there other expenses, such as college tuition, that may arise in the future? Don’t forget to include potential medical and funeral costs. Above everything, you want to be sure your family does not get stuck with bills, debts or expenses that they cannot afford. WD & Associates can conduct an evaluation of your particular circumstances and make a recommendation that is personal to you.
Why Purchase Now?
Buying life insurance may seem unmanageable right now, but it could be a smart decision. Unlike many other benefits, life insurance is actually more affordable right now than in the recent past. Plus, during this tough economic period, ensuring that your family will be financially secure in the future is more important than ever.
If you have more questions about our life insurance benefit, please make an appointment with HR.
Case Study - Why Do You Need Life Insurance
Youth minister Preston Newby and his wife, Tara, met during college and were soon married. After visiting their local insurance agent to purchase auto and renters insurance, they decided to look into life insurance policies. With a 19-month-old son and another child on the way, life insurance policies made a lot of sense in case anything ever happened to either of them. Unfortunately, this worst-case scenario became reality a couple of months later.
Life insurance isn’t a pleasant thing to think about, and it may seem like an unnecessary expense. But if you have dependents who rely on you for financial support, then life insurance is really about protecting them in case something happens to you.
While driving to Canada to visit Tara’s parents, a group of cars up ahead of the Newbys slammed on their brakes and veered to the right side of the road. After coming to a stop, Preston hopped out of the car to find out what happened. One of the cars had hit an elk, and when Preston realized a passenger was bleeding, he ran back to his car to tell Tara to dial 911. As she reached for her phone, a car flew by and hit Preston, killing him instantly.
Thanks to the life insurance policy the Newbys purchased months earlier, Tara was able to pay off the family’s existing debt and provide for her two young sons after Preston’s death.
Whether you are 25 or 55, a life insurance policy gives you the peace of mind that should the worst happen, your loved ones will be taken care of. Even if you already have life insurance through your employer, you may be underinsured and that insurance would likely end should you leave that job. Call WD & Associates today and have an advisor work with you to ensure that there aren’t any gaps in your current coverage.
To save the information from this blog, you can download the PDFs here and here. If you're thinking about life insurance, you can either reach out to the WD & Associates team to talk to an expert about the best plan for you, or you can get an instant online quote for term life insurance through our trusted partner!